Academic Commons Search Resultshttp://academiccommons.columbia.edu/catalog.rss?f%5Bseries_facet%5D%5B%5D=Department+of+Economics+Discussion+Papers&q=&rows=500&sort=record_creation_date+desc
Academic Commons Search Resultsen-usIntrinsic Motivation in Public Service: Theory and Evidence from State Supreme Courtshttp://academiccommons.columbia.edu/catalog/ac:179633
Ash, Elliott; MacLeod, W. Bentleyhttp://dx.doi.org/10.7916/D87S7MF2Mon, 17 Nov 2014 00:00:00 +0000This paper provides a theoretical and empirical analysis of the intrinsic preferences of state appellate court judges. We construct a panel data set using published decisions from state supreme court cases merged with institutional and biographical information on all (1,700) state supreme court judges for the 50 states of the United States from 1947 to 1994. We exploit variation in the employment conditions of judges over this period of time to measure the effect of these changes on a number of measures of judicial performance. The results are consistent with the hypothesis that judges are intrinsically motivated to provide high-quality decisions, and that at the margin they prefer quality over quantity. When judges face less time pressure, they write more well-researched opinions that are cited more often by later judges. When judges are up for election then performance falls, consistent with the hypothesis that election politics is time-consuming. These effects are strongest when judges have more discretion to select their case portfolio, consistent with psychological theories that posit a negative effect of contingency on motivation (e.g. Deci, 1971). Finally, the intrinsic preference for quality appears to be higher among judges selected by non-partisan elections than among those selected by partisan elections.Economics, Economics, Labor, Laweta2103, wbm2103EconomicsWorking papersDiagnosing Expertise: A Two Factor Model of Physician Skillhttp://academiccommons.columbia.edu/catalog/ac:179642
Currie, Janet M.; MacLeod, W. Bentleyhttp://dx.doi.org/10.7916/D8086415Mon, 17 Nov 2014 00:00:00 +0000This paper develops and applies a model in which doctors have two dimensions of skill: diagnostic skill and skill performing procedures. Higher procedural skill increases the use of intensive procedures across the board, while better diagnostic skill results in fewer intensive procedures for the low risk, but more for the high risk. Deriving empirical analogues to our theoretical measures for the case of C- section, we show that poor diagnosticians can be identified in the data and that improving diagnostic skill would reduce C-section rates by 15.5% in the bottom half of the risk distribution, and increase them by 5.5% in the top half. Such an change in the allocation of procedures would improve birth outcomes among all women.Economics, Health care managementwbm2103EconomicsWorking papersThe Economics of Relational Contractshttp://academiccommons.columbia.edu/catalog/ac:179658
MacLeod, W. Bentleyhttp://dx.doi.org/10.7916/D8QR4VTRMon, 17 Nov 2014 00:00:00 +0000The legal scholarship on relational contracts highlights the fact that commercial transactions rely upon a large number of institutions, including trade norms and the good reputation of industry participants. This complexity is in contrast to the simple models that are often used in economics analysis of the law, leading Macauley (2002) to suggest one can view “law and economics as a desert, and law and society as a swamp". The purpose of this paper is to show that the economic analysis of relational contracts touches upon several elements of modern micro-economics that can be distinguished by different meanings of the term “price” . The term “economic price” refers to the true resource cost of a commodity, and can explain the role of standards setting by trade organizations. “Trade price” refers to terms of trade, but can be distorted due to asymmetric information. This effect may be mitigate via reputational mechanisms. Finally, “contract price” refers to contingent prices such as warranties, as well as legally enforceable agreements for which courts can be asked to impose damages where there is con- tract breach.Economics, Lawwbm2103EconomicsWorking papersThe Empirical Implications of the Grossman-Hart Model: Comments on “Incomplete Contracts and the Internal Organization of Firms” by P. Aghion, N. Bloom and J. Van Reenenhttp://academiccommons.columbia.edu/catalog/ac:179663
MacLeod, W. Bentleyhttp://dx.doi.org/10.7916/D8G73CDVMon, 17 Nov 2014 00:00:00 +0000This is a comment on “Incomplete Contracts and the Internal Organization of Firms” by P. Aghion, N. Bloom and J. Van Reenen, forthcoming in The Impact of Incomplete Contracts on Economics, edited by Philippe Aghion, Mathias Dewatripont, Patrick Legros, and Luigi Zingales, Oxford University Press, 2015.Economics, Lawwbm2103EconomicsWorking papersStorable Votes and Judicial Nominations in the U.S. Senatehttp://academiccommons.columbia.edu/catalog/ac:176845
Casella, Alessandra M.; Turban, Sebastien; Wawro, Gregory J.http://dx.doi.org/10.7916/D8SB4417Wed, 27 Aug 2014 00:00:00 +0000We model a procedural reform aimed at restoring a proper role for the minority in the confirmation process of judicial nominations in the U.S. Senate. We propose that nominations to the same level court be collected in periodic lists and voted upon individually with Storable Votes, allowing each senator to allocate freely a fixed number of total votes. Although each nomination is decided by simple majority, storable votes make it possible for the minority to win occasionally, but only when the relative importance its members assign to a nomination is higher than the relative importance assigned by the majority. Numerical simulations, motivated by a game theoretic model, show that under plausible assumptions a minority of 45 senators would be able to block between 20 and 35 percent of nominees. For most parameter values, the possibility of minority victories increases aggregate welfare.Economics, Political scienceac186, st2511, gjw10Political Science, EconomicsWorking papersNon-Discriminatory Electoral Rules, Local Public Goods, and Redistribution: Evidence from US Municipalitieshttp://academiccommons.columbia.edu/catalog/ac:176842
Elias, Ferranhttp://dx.doi.org/10.7916/D81V5C80Wed, 27 Aug 2014 00:00:00 +0000The Voting Right Act guaranteed the right to vote for minorities, including the prohibition of any electoral discriminatory practices on the basis of race. This triggered a series of court decisions outlawing discriminatory electoral rules between 1970 and 1990. I study the effects of several court orders that guarantee minority representation on city public budgets, and find that both local public good expenditures (5-7.5%) and city tax collection (5-10%) increased, after the changes towards non-discriminatory electoral rules. I also explore the distributional consequences of non-discriminatory elections and find that the fraction of black public workers and citizens increased after changes in the election system, while those of whites decreased. The growth rates of black house values and rents also increase more. The findings are inconsistent with a negative effect of ethnic heterogeneity in the city council on public goods, and with common-pool theories. I show evidence that the most plausible channel that explains the results is the new legislative bargaining power that black communities gained.Economics, Lawfe2139EconomicsWorking papersMines: The Local Welfare Effects of Mineral Mining in Developing Countrieshttp://academiccommons.columbia.edu/catalog/ac:171770
von der Goltz, Jan; Barnwal, Prabhathttp://dx.doi.org/10.7916/D8348HFDThu, 13 Mar 2014 00:00:00 +0000Do residents of mining communities face health-wealth trade-offs? We conduct the first extensive investigation assessing this question using micro-data from communities near about 800 mineral mines in 44 developing countries. Mining communities enjoy a substantial medium term rise in asset wealth (0.3σ), but experience a nine percentage point increase in anemia among adult women, and a five percentage point increase in the prevalence of stunting in young children. Both of these health impacts have previously been linked to metal toxicity - and in particular, exposure to high levels of environmental lead. Benefits and costs are strongly concentrated in the immediate vicinity (5km) of the nearest mine. We find no systematic evidence of general ill health, and we observe health impacts only near mines of a type where lead pollution is to be expected. Identification is based on a mine-level and mother-level panel, and in the cross-section, on group effects. A novel instrumental variable serves as a cross-sectional robustness check. To make plausible that the observed health impacts are due to pollution, we develop difference-in-difference tests based on the known association of certain mine types with lead pollution, and based on the pathophysiology of lead toxicity. Our results represent the first comprehensive assessment of the local welfare impacts of mining in developing countries, and add to the evidence suggesting that communities near industrial centers in developing countries face information or cost constraints that limit their choice sets.Economics, Public healthpb2442Economics, International and Public AffairsWorking papersDecentralized College Admissionshttp://academiccommons.columbia.edu/catalog/ac:171755
Che, Yeon-Koo; Koh, Youngwoohttp://dx.doi.org/10.7916/D8GB2246Thu, 13 Mar 2014 00:00:00 +0000We study decentralized colleges admissions in the face of uncertain student preferences. Enrollment uncertainty causes colleges to strategically target their admissions, forgoing students sought after by others and seeking students overlooked by others. When students' types are multidimensional, colleges avoid head-on competition by placing excessive weights on less correlated dimensions. Restricting the number of applications or allowing for wait-listing alleviates enrollment uncertainty, but the resulting assignments of decentralized matching are inefficient and unfair. A centralized matching via Gale and Shapley's deferred acceptance algorithm attains efficiency and fairness, but some colleges can be worse off relative to decentralized matching.Economics, Higher educationyc2271, yk2307EconomicsWorking papersMediation and Peacehttp://academiccommons.columbia.edu/catalog/ac:171764
Horner, Johannes; Morelli, Massimo; Squintani, Francescohttp://dx.doi.org/10.7916/D8BP00TSThu, 13 Mar 2014 00:00:00 +0000This paper applies mechanism design to the study of international conflict resolution. Standard mechanisms in which an arbitrator can enforce her decisions are usually not feasible because disputants are sovereign entities. Nevertheless, we find that this limitation is inconsequential. Despite only being capable of making non-binding recommendations, we find that mediators are equally effective as arbitrators. We determine optimal mediation techniques. They consist in not precisely reporting information to conflicting parties, and specifically, in not revealing to a player with probability one that the opponent is weak. These obfuscation techniques strictly improve the chance of peace when the intensity of conflict is high, or when asymmetric information is significant.Economics, Political sciencemm3331Political Science, EconomicsWorking papersDispute Resolution Institutions and Strategic Militarizationhttp://academiccommons.columbia.edu/catalog/ac:171767
Meirowitz, Adam; Morelli, Massimo; Ramsay, Kristopher W.; Squintani, Francescohttp://dx.doi.org/10.7916/D86W984CThu, 13 Mar 2014 00:00:00 +0000A central question in political science is how to best manage information asymmetries and commitment problems when disputes arise between states or nations. We argue that common framings of this problem miss an important feature: the institutions determining how disputes are resolved shape the incentives for nations to enter disputes. Because war can be sometimes understood as the down-side risk from entering a dispute, institutions that reduce the chances of war-fighting may induce perverse incentives to enter into disputes and militarize. We develop a simple crisis model that captures both the militarization decisions and bargaining behavior. We examine how features like direct communication and third-party involvement alter the incentives. Seemingly effective institutions that improve the chance of peace for a given distribution of military strength, can actually lower the chance of peace once one accounts for distortions to militarization decisions. To illustrate the value of this broader perspective we show how a form of intervention by a mediator concerned only with resolving the current crisis, turns out to create optimal militarization and bargaining incentives.Economics, Political sciencemm3331Political Science, EconomicsWorking papers"Fedspeak": Does it Matter How Central Bankers Explain Themselves?http://academiccommons.columbia.edu/catalog/ac:167290
Woodford, Michaelhttp://dx.doi.org/10.7916/D8F18WNQThu, 21 Nov 2013 00:00:00 +0000There have been many notable changes in the policies of the Fed and other central banks in response to the global financial crisis and its continuing aftermath, and few would disagree that the importance of these institutions for both the US and the world economy has become more evident as a result. Tonight I want to talk about only one of the notable changes in Fed policy, though it is one that I suspect will come to be seen as a change of historic significance for the institution. This is the increase in recent years in the degree to which the Fed openly discusses its policy deliberations and the bases for its decisions.Economicsmw2230EconomicsWorking papersHousing Prices and Robustly Optimal Monetary Policyhttp://academiccommons.columbia.edu/catalog/ac:167284
Woodford, Michael; Adam, Klaushttp://dx.doi.org/10.7916/D8JS9NC4Thu, 21 Nov 2013 00:00:00 +0000We analytically characterize robustly optimal monetary policy for an augmented New Keynesian model with a housing sector. In our setting, the housing stock delivers a service flow entering households’ utility, houses are durable goods that depreciate over time, and new houses can be produced using a concave production technology. We show that shocks to housing demand and to housing productivity have “cost-push” implications, which warrant temporary fluctuations in the inflation rate under optimal policy, even under an assumption of rational expectations, for reasons familiar from the literature on “flexible inflation targeting”. However, under rational expectations optimal monetary policy can still be characterized by commitment to a “target criterion” that refers to inflation and the output gap only, just as in the standard model without a housing sector. Instead, if policy is to be robust to potential departures of (house price and inflation) expectations from model-consistent ones, the target criterion must also depend on housing prices. In the empirically realistic case where the government subsidizes housing, the robustly optimal target criterion requires the central bank to “lean against” unexpected increases in housing prices, in the sense that it should adopt a policy stance that is projected to undershoot its normal targets for inflation and/or the output gap owing to the increase in housing prices, and similarly aim to overshoot those targets in the case of unexpected declines in housing prices.Economicsmw2230EconomicsWorking papersHow Much Do Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Datahttp://academiccommons.columbia.edu/catalog/ac:167265
Amiti, Mary; Weinstein, David E.http://dx.doi.org/10.7916/D8G15XS3Thu, 21 Nov 2013 00:00:00 +0000We show that supply-side financial shocks have a large impact on firms’ investment. We do this by developing a new methodology to separate firm-borrowing shocks from bank supply shocks using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). As a result, bank supply shocks—i.e., movements in the supply of bank loans net of borrower characteristics and general credit conditions—can have large impacts on aggregate loan supply and investment. We show that these bank supply shocks explain 40 percent of aggregate loan and investment fluctuations.Economicsdew35EconomicsWorking papersHow Much Do Official Price Indexes Tell Us About Inflationhttp://academiccommons.columbia.edu/catalog/ac:167271
Weinstein, David E.; Handbury, Jessie; Wantanabe, Tsutomuhttp://dx.doi.org/10.7916/D8B85625Thu, 21 Nov 2013 00:00:00 +0000Official price indexes, such as the CPI, are imperfect indicators of inflation calculated using ad hoc price formulae different from the theoretically well-founded inflation indexes favored by economists. This paper provides the first estimate of how accurately the CPI informs us about “true” inflation. We use the largest price and quantity dataset ever employed in economics to build a Törnqvist inflation index for Japan between 1989 and 2010. Our comparison of this true inflation index with the CPI indicates that the CPI bias is not constant but depends on the level of inflation. We show the informativeness of the CPI rises with inflation. When measured inflation is low (less than 2.4% per year) the CPI is a poor predictor of true inflation even over 12-month periods. Outside this range, the CPI is a much better measure of inflation. We find that the U.S. PCE Deflator methodology is superior to the Japanese CPI methodology but still exhibits substantial measurement error and biases rendering it a problematic predictor of inflation in low inflation regimes as well.Economicsdew35EconomicsWorking papersConventional and Unconventional Monetary Policy with Endogenous Collateral Constraintshttp://academiccommons.columbia.edu/catalog/ac:167280
Woodford, Michael; Araujo, Aloisio; Schommer, Susanhttp://dx.doi.org/10.7916/D8TB14TQThu, 21 Nov 2013 00:00:00 +0000We consider the effects of central-bank purchases of a risky asset, financed by issuing riskless nominal liabilities (reserves), as an additional dimension of policy alongside “conventional” monetary policy (central-bank control of the riskless nominal interest rate), in a general-equilibrium model of asset pricing and risk sharing with endogenous collateral constraints of the kind proposed by Geanakoplos (1997). When sufficient collateral exists for collateral constraints not to bind for any agents, we show that central-bank asset purchases have no effects on either real or nominal variables, despite the differing risk characteristics of the assets purchased and the ones issued to finance these purchases. At the same time, the existence of collateral constraints allows our model to capture the common view that large enough central-bank purchases would eventually have to effect asset prices. But even when central-bank purchases raise the price of the asset, owing to binding collateral constraints, the effects need not be the ones commonly assumed. We show that under some circumstances, central-bank purchases relax financial constraints, increase aggregate demand, and may even achieve a Pareto improvement; but in other cases, they may tighten financial constraints, reduce aggregate demand, and lower welfare. The latter case is almost certainly the one that arises if central-bank purchases are sufficiently large.Economicsmw2230EconomicsWorking papersMacroeconomic Analysis Without the Rational Expectations Hypothesishttp://academiccommons.columbia.edu/catalog/ac:167274
Woodford, Michaelhttp://dx.doi.org/10.7916/D82R3PMQThu, 21 Nov 2013 00:00:00 +0000This paper reviews a variety of alternative approaches to the specification of the expectations of economic decision makers in dynamic models, and reconsiders familiar results in the theory of monetary and fiscal policy when one allows for departures from the hypothesis of rational expectations. The various approaches are all illustrated in the context of a common model, a log-linearized New Keynesian model in which both households and firms solve infinite-horizon decision problems; under the hypothesis of rational expectations, the model reduces to the standard “3-equation model” used in studies such as Clarida et al. (1999). The alternative approaches considered include rationalizable equilibrium dynamics (Guesnerie, 2008); restricted perceptions equilibria (Branch, 2004); decreasing-gain and constant-gain variants of least-squares learning dynamics (Evans and Honkapohja, 2001); rational belief equilibria (Kurz, 2012); and near-rational expectations equilibria (Woodford, 2010). Issues treated include Ricardian equivalence; the determinacy of equilibrium under alternative interest-rate rules; non-fundamental sources of aggregate instability; the tradeoff between inflation stabilization and output-gap stabilization; and the possibility of a “deflation trap.”Economicsmw2230EconomicsWorking papersA Cultural Clash View of the EU Crisishttp://academiccommons.columbia.edu/catalog/ac:167253
Morelli, Massimo; Herrera, Helios; Guiso, Luigihttp://dx.doi.org/10.7916/D87H1GGTThu, 21 Nov 2013 00:00:00 +0000If voters of different countries adhere to different and deeply rooted cultural norms, when these countries interact their leaders may find it impossible to agree on efficient policies especially in hard times. Political leader’s actions are bound by a conformity constraint that requires them to express policies that do not violate these norms. This inhibits politicians from adopting the optimal policies as they may clash with either one or the other of the cultures of the interacting countries. We model this mechanism and argue that conformity constraints and cultural clash can help us understand the poor management of the Greek crisis and the resulting European Sovereign debt crisis. We show the conditions under which the introduction in Europe of a fiscal union can be obtained with consensus and be beneficial. Perhaps counter-intuitively, cultural diversity makes a fiscal union even more desirable.Economicsmm3331EconomicsWorking papersThe Portuguese Slump and Crash and the Euro Crisishttp://academiccommons.columbia.edu/catalog/ac:167262
Reis, Ricardohttp://dx.doi.org/10.7916/D8V985ZJThu, 21 Nov 2013 00:00:00 +0000Between 2000 and 2012, the Portuguese economy grew less than the United States during the Great Depression and less than Japan during its lost decade. This paper asks why this happened, with a particular focus on the slump between 2000 and 2007. It describes the main facts of Portugal’s recent economic history, evaluates some possible explanations for its dismal performance, and proposes a new hypothesis based on the misallocation of abundant capital flows from abroad. I put forward a model of credit frictions to show that if financial integration exceeds financial deepening, productivity will fall, generating a slump as relatively unproductive firms in the nontradables sector expand at the expense of more productive tradables firms. This explanation can also potentially account for the similarities and the differences between Portugal on the one hand, and Ireland and Spain on the other, during this period, and for some features of the crash in Portugal after 2010.Economicsrr2572EconomicsWorking papersRe-Election Through Divisionhttp://academiccommons.columbia.edu/catalog/ac:167246
Morelli, Massimo; Van Weelden, Richardhttp://dx.doi.org/10.7916/D8C8276JThu, 21 Nov 2013 00:00:00 +0000We provide a positive analysis of effort allocation by a politician facing reelection when voters are uncertain about the politician’s preferences on a divisive issue. We then use this framework to derive normative conclusions on the desirability of transparency and other institutional design features. There is a pervasive incentive to “posture” by over-providing effort to pursue divisive policies, even if all voters would strictly prefer to have a consensus policy implemented. As such, the desire of politicians to convince voters that their preferences are aligned with the majority can lead them to choose strictly pareto dominated effort allocations. Transparency over the politicians’ effort choices can either mitigate or re-enforce the distortions depending on the strength of politicians’ office motivation and the efficiency of institutions. When re-election concerns are paramount, and executive institutions are strong, transparency about effort choices can be bad for both incentivizing politicians and for sorting.Economicsmm3331EconomicsWorking papersCentral Bank Designhttp://academiccommons.columbia.edu/catalog/ac:167259
Reis, Ricardohttp://dx.doi.org/10.7916/D83R0QR3Thu, 21 Nov 2013 00:00:00 +0000What set of institutions can support the activity of a central bank? Designing a central bank requires specifying its objective function, including the bank's mandate at different horizons and the choice of banker(s), specifying the resource constraint that limits the resources that the central bank generates, the assets it holds, or the payments on its liabilities, and finally specifying how the central bank will communicate with private agents to affect the way they respond to policy choices. This paper summarizes the relevant economic literature that bears on these choices, leading to twelve principles on central bank design.Economicsrr2572EconomicsWorking papersMonetary Policy Targets After the Crisishttp://academiccommons.columbia.edu/catalog/ac:167294
Woodford, Michaelhttp://dx.doi.org/10.7916/D85H7D62Thu, 21 Nov 2013 00:00:00 +0000In the global financial crisis and its aftermath, central banks have undertaken unprecedented actions of many kinds. This raises a natural question: has the crisis revealed that the previous consensus framework for monetary policy was inadequate, and should now be fundamentally reconsidered? It is surely true that central banks were not too well prepared for the crisis, and that new policies had to be created to a large extent on the fly. And it would obviously be desirable to try to learn from this experience, in order to be better prepared for an appropriate response next time and perhaps even to reduce the probability of there being a “next time” as well.Economicsmw2230EconomicsWorking papersForward Guidance by Inflation-Targeting Central Bankshttp://academiccommons.columbia.edu/catalog/ac:167297
Woodford, Michaelhttp://dx.doi.org/10.7916/D81V5BWNThu, 21 Nov 2013 00:00:00 +0000One of the notable features of inflation targeting as an approach to the conduct of monetary policy has been the increased degree of transparency on the part of inflation targeting central banks, not only as to their decisions but also with regard to the goals that policy seeks to achieve and the reasoning behind individual decisions. The degree to which this makes it appropriate, or even necessary, for inflation-targeting central banks to speak in advance about future policy decisions has been a topic of debate, but over time, inflation-targeting central banks such as the Reserve Bank of New Zealand, the Norges Bank, and Sveriges Riksbank have also led the way in increasing the degree of explicit communication about the likely forward path of short-term interest rates on a regular basis.Economicsmw2230EconomicsWorking papersWeak Cartels and Collusion-Proof Auctionshttp://academiccommons.columbia.edu/catalog/ac:167227
Che, Yeon-Koo; Condorelli, Daniele; Kim, Jinwoohttp://dx.doi.org/10.7916/D84Q7RWXThu, 21 Nov 2013 00:00:00 +0000We study collusion in a large class of private-value auctions by cartels whose members cannot exchange monetary transfers among themselves (i.e., weak cartels). We provide a complete characterization of outcomes that are implementable in the presence of weak cartels, and identify optimal collusion-proof auctions for symmetric value distributions. When the density is single-peaked, the optimal collusion-proof auction can be implemented by a procedure that combines a second-price auction with a sequential one-on- one negotiation.Economicsyc2271EconomicsWorking papersGeneralized Reduced-Form Auctions: A Network Flow Approachhttp://academiccommons.columbia.edu/catalog/ac:167236
Che, Yeon-Koo; Kim, Jinwoo; Meirendorff, Konradhttp://dx.doi.org/10.7916/D8W66HPMThu, 21 Nov 2013 00:00:00 +0000We develop a network-flow approach for characterizing interim-allocation rules that can be implemented by ex post allocations. Our method can be used to characterize feasible interim allocations in general multi-unit auctions where agents face capacity constraints, both ceilings and floors. Applications include a variety of settings of practical interest, ranging from individual and group-specific capacity constraints, set-aside sale, partnership dissolution, and government license reallocation.Economicsyc2271EconomicsWorking papersCredit Market Speculation and the Cost of Capitalhttp://academiccommons.columbia.edu/catalog/ac:167242
Che, Yeon-Koo; Sethi, Rajivhttp://dx.doi.org/10.7916/D8RF5RZWThu, 21 Nov 2013 00:00:00 +0000We examine the effects of speculation using credit derivatives on the cost of debt and the likelihood of default. The availability of credit default swaps induces investors who are optimistic about borrower revenues to sell protection instead of buying bonds. This benefits borrowers if protection can only be bought with an insurable interest, but can increase the cost of debt and crowd out productive lending if protection can be purchased as a bet on default. We also show that the possibility of speculation on default may cause multiple equilibria and exacerbate the problem of rollover risk.Economicsyc2271, rs328Economics, Economics (Barnard College)Working papersGambling Reputation: Repeated Bargaining with Outside Optionshttp://academiccommons.columbia.edu/catalog/ac:162802
Lee, Jihong; Liu, Qingminhttp://hdl.handle.net/10022/AC:P:20918Mon, 01 Jul 2013 00:00:00 +0000We study the role of incomplete information and outside options in determining bargaining postures and surplus division in repeated bargaining between a long-run player and a sequence of short-run players. The outside option is not only a disagreement point but reveals information privately held by the long-run player. In equilibrium, the uninformed short-run players' offers do not always respond to changes in reputation and the informed long-run player's payoffs are discontinuous. The long-run player invokes inefficient random outside options repeatedly in order to build reputation to a level where the subsequent short-run players succumb to his extraction of a larger payoff, but he also runs the risk of losing reputation and relinquishing bargaining power. We investigate equilibrium properties when the discount factor goes to 1 and when the informativeness of outside option diffuses. In both cases, bargaining outcomes become more inefficient and the limit reputation building probabilities are interior.Economicsql2177EconomicsWorking papersThe Role of Information Innovation and Competitionhttp://academiccommons.columbia.edu/catalog/ac:162799
Akcigit, Ufuk; Liu, Qingminhttp://hdl.handle.net/10022/AC:P:20916Mon, 01 Jul 2013 00:00:00 +0000Innovation is typically a trial-and-error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead-end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. This is a major problem, particularly in industries that rely heavily on trial-and-error research. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead-end replication and a flight to safety--an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner.Economicsql2177EconomicsWorking papersStable Matching with Incomplete Informationhttp://academiccommons.columbia.edu/catalog/ac:162796
Liu, Qingmin; Mailath, George J.; Postlewaite, Andrew; Samuelson, Larryhttp://hdl.handle.net/10022/AC:P:20915Mon, 01 Jul 2013 00:00:00 +0000We formulate a notion of stable outcomes in matching problems with one-sided asymmetric information. The key conceptual problem is to formulate a notion of a blocking pair that takes account of the inferences that the uninformed agent might make. We show that the set of stable outcomes is nonempty in incomplete-information environments, and is a superset of the set of complete-information stable outcomes. We then provide sufficient conditions for incomplete-information stable matchings to be efficient. Lastly, we define a notion of price-sustainable allocations and show that the set of incomplete-information stable matchings is a subset of the set of such allocations.Economicsql2177EconomicsWorking papersOptimal Exchange Rate Policy Under Collateral Constraints and Wage Rigidityhttp://academiccommons.columbia.edu/catalog/ac:162449
Ottonello, Pablohttp://hdl.handle.net/10022/AC:P:20777Mon, 17 Jun 2013 00:00:00 +0000Existing literature on small open economies has studied separately two opposite effects of currency depreciation during crises: in the presence of nominal wage rigidity, exchange rate depreciation reduces unemployment; in the presence of collateral constraints that link external debt to the value of income, exchange rate depreciation tightens the collateral constraint and leads to higher consumption adjustment. This paper shows that in a model that includes both frictions, exchange rate policy faces a “credit access - unemployment trade-off," i.e., a trade-off between reducing involuntary unemployment and relaxing the external credit limit. A quantitative study of this model shows that during financial crisis episodes, optimal policy features large nominal and real exchange rate depreciation. This is because, while containing real exchange rate depreciation can have welfare gains related to second moments (lower consumption volatility) its costs are related to first-moments (higher average unemployment rate). The optimal policy implies a lower currency depreciation than that necessary to achieve full employment, which is consistent with “managed-floating" exchange rate policy, typically observed during financial crises in emerging economies. Sudden Stops (or large current account adjustments) are part of the endogenous response under the optimal exchange rate policy to large negative shocks.Economicspo2171EconomicsWorking papersLow Skilled Local Labor Demand Shocks and Labor Market Outcomes: Evidence from the Mexican Tequila Crisishttp://academiccommons.columbia.edu/catalog/ac:162446
Monras, Joanhttp://hdl.handle.net/10022/AC:P:20776Mon, 17 Jun 2013 00:00:00 +0000How does immigration affect natives local wages? A vast literature considers this, much of it focused on Mexican immigration to the United States. Prior work emphasizes the importance of instrumenting for immigrant destinations, the key role of experience-skill cells, and the potential for spillovers to national markets. I build on these, using the Mexican ’Tequila Crisis’ of the mid-1990s as an exogenous shock to immigration. Instrumentation thus includes both a time dimension for the shock period, plus a destination dimension as in prior work. The 1.5% immigration shock of the Tequila Crisis lowered the wages of young low skilled US natives by 1 to 1.5 percent. It also prompted interstate labor reallocation. The share of low skilled workers is estimated to decrease by 2 percentage points as a result of the shock. This explains why within five years, national markets adjust, leaving no evidence of differential spatial impact.Economicsjm3364EconomicsWorking papersThe role of automatic stabilizers in the U.S. business cyclehttp://academiccommons.columbia.edu/catalog/ac:162455
McKay, Alisdair; Reis, Ricardohttp://hdl.handle.net/10022/AC:P:20779Mon, 17 Jun 2013 00:00:00 +0000Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how effective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the effectiveness of the stabilizers, whereas tax-and- transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any effect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the effectiveness of the stabilizers.Economicsrr2572EconomicsWorking papersElectricity Cost and Firm Performance: Evidence from Indiahttp://academiccommons.columbia.edu/catalog/ac:162440
Abeberese, Ama Baafrahttp://hdl.handle.net/10022/AC:P:20773Mon, 17 Jun 2013 00:00:00 +0000Despite the widely acknowledged importance of infrastructure for economic growth, there has been relatively little research on how infrastructure affects the decisions of firms. Using data on Indian manufacturing firms, this paper provides evidence on how electricity prices affect a firm's industry choice and productivity growth. I construct an instrument for electricity price as the interaction between the price of coal paid by power utilities, which is arguably exogenous to firm characteristics, and the initial share of thermal generation in a state's total electricity generation capacity. I find that, in response to an exogenous increase in electricity price, firms reduce their electricity consumption and switch to industries with less electricity-intensive production processes. I also find that firm output, machine intensity and labor productivity decline with an increase in electricity price. In addition to these level effects, I show that firm output and productivity growth rates are negatively affected by high electricity prices. These results suggest that electricity constraints faced by firms may limit a country's growth by leading firms to operate in industries with fewer productivity-enhancing opportunities.Economicsaba2114EconomicsWorking papersThe Geography of Inter-State Resource Warshttp://academiccommons.columbia.edu/catalog/ac:159795
Caselli, Francesco; Morelli, Massimo; Rohner, Dominichttp://hdl.handle.net/10022/AC:P:19869Tue, 23 Apr 2013 00:00:00 +0000We establish a theoretical as well as empirical framework to assess the role of resource endowments and their geographic location for inter-State conflict. The main predictions of the theory are that conflict tends to be more likely when at least one country has natural resources; when the resources in the resource-endowed country are closer to the border; and, in the case where both countries have natural resources, when the resources are located asymmetrically vis-a-vis the border. We test these predictions on a novel dataset featuring oilfield distances from bilateral borders. The empirical analysis shows that the presence and location of oil are significant and quantitatively important predictors of inter-State conflicts after WW2.Economicsmm3331Political Science, EconomicsWorking papersDefault Tipshttp://academiccommons.columbia.edu/catalog/ac:157853
Haggag, Kareem; Paci, Giovannihttp://hdl.handle.net/10022/AC:P:19386Thu, 21 Mar 2013 00:00:00 +0000We examine the role of defaults in high-frequency, small-scale choices using unique data on over 13 million NYC taxi rides. We exploit a shift in the set of default tip suggestions presented to customers prior to payment, as the base fare changes from below $15 to above $15. Using a regression discontinuity design, we show that default suggestions have a large impact on tip amounts. These results are supported by a secondary analysis that uses the quasi-random assignment of customers to different cars to examine default effects on all fares above $15. Finally, we highlight a potential cost of setting defaults too high, as a higher proportion of customers opt to leave no credit card tip when presented with the higher suggested amounts.Economicsgp2282EconomicsWorking papersHow much do Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Datahttp://academiccommons.columbia.edu/catalog/ac:157856
Amiti, Mary; Weinstein, David E.http://hdl.handle.net/10022/AC:P:19387Thu, 21 Mar 2013 00:00:00 +0000We show that supply-side financial shocks have a large impact on firms’ investment. We do this by developing a new methodology to separate firm credit shocks from loan supply shocks using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). As a result, idiosyncratic bank shocks—i.e., movements in bank loan supply net of borrower characteristics and general credit conditions—can have large impacts on aggregate loan supply and investment. We show that these idiosyncratic bank shocks explain 40 percent of aggregate loan and investment fluctuations.Economics, Bankingdew35EconomicsWorking papersOptimal Contracts for Experimentationhttp://academiccommons.columbia.edu/catalog/ac:157484
Halac, Marina C.; Liu, Qingmin; Kartik, Navinhttp://hdl.handle.net/10022/AC:P:19294Thu, 07 Mar 2013 00:00:00 +0000This paper studies long-term contracts for experimentation in a principal-agent setting with adverse selection about the agent’s ability (pre-contractual hidden information), dynamic moral hazard, and private learning about project quality. We show that profit maximization by the principal generally leads to under-experimentation by an agent of low ability, even though there would be no distortion in the absence of either adverse selection or moral hazard. The structure of optimal contracts is shaped by a variety of considerations including dynamic agency costs and the possibility of post-contractual hidden information about project quality. We derive two explicit menus of contracts that can be used to implement the second best solution: “bonus contracts” and “clawback contracts”. Both feature history-contingent dynamic streams of transfers.Economics, Lawmh3000, ql2177, nk2339Business, EconomicsWorking papersCongested Observational Learninghttp://academiccommons.columbia.edu/catalog/ac:157490
Eyster, Eric; Galeotti, Andrea; Kartik, Navin; Rabin, Matthewhttp://hdl.handle.net/10022/AC:P:19296Thu, 07 Mar 2013 00:00:00 +0000We study observational learning in environments with congestion costs: as more of one's predecessors choose an action, the payoff from choosing that action decreases. Herds cannot occur if congestion on an action can get so large that an agent would prefer to take a different action no matter what his beliefs about the state. To the extent that "switching" away from the more popular action also reveals some private information, social learning is improved. The absence of herding does not guarantee complete asymptotic learning, however, as information cascades can occur through perpetual but uninformative switching between actions. Our main contribution is to provide conditions on the nature of congestion costs that guarantee complete learning and conditions that guarantee bounded learning. We find that asymptotic learning can be virtually complete even if each agent has only an infinitesimal effect on congestion costs. We further show that congestion costs have ambiguous effects on the proportion of agents who choose the superior action. We apply our results to markets where congestion costs arise through responsive pricing and to queuing problems where agents dislike waiting for service.Economicsnk2339EconomicsWorking papersSimple Mechanisms and Preferences for Honestyhttp://academiccommons.columbia.edu/catalog/ac:157487
Holden, Richard; Kartik, Navin; Tercieux, Olivierhttp://hdl.handle.net/10022/AC:P:19295Thu, 07 Mar 2013 00:00:00 +0000We consider full implementation in abstract complete-information environments when agents have an arbitrarily small preference for honesty. We offer a condition called separable punishment and show that when it holds and there are at least two agents, any social choice function can be implemented by a simple mechanism in two rounds of iterated deletion of strictly dominated strategies. We also extend our result to settings of incomplete information so long as there is non-exclusive information.Economicsnk2339, ot2165EconomicsWorking papersTransparency and Price Formationhttp://academiccommons.columbia.edu/catalog/ac:157215
Kaya, Ayca; Liu, Qingminhttp://hdl.handle.net/10022/AC:P:19195Thu, 28 Feb 2013 00:00:00 +0000We study the role that price transparency plays in determining the efficiency and surplus division in a sequential bargaining model of price formation with symmetric information. Under natural assumptions on type distributions, and for any discount factor, we show that the unobservability of past negotiations leads to lower prices and faster trading. The lack of transparency therefore enhances the "Coasian effect" by fostering efficiency and diverting more of the surplus to the player who possesses private information. In addition, we show that the equilibrium is unique and is in pure strategies in the non-transparent regime; this stands in sharp contrast to the existing literature and allows for a better understanding of the role of transparency.Economicsql2177EconomicsWorking papersWhat Makes an Efficient Physician? Evidence from Florida Emergency Room Visitshttp://academiccommons.columbia.edu/catalog/ac:155596
Van Parys, Jessicahttp://hdl.handle.net/10022/AC:P:18764Thu, 17 Jan 2013 00:00:00 +0000This is the first paper to use the quasi-random assignment of patients to physicians in emergency rooms to estimate how physician human capital affects efficiency. It focuses on commonplace medical conditions, where we might not expect patients to receive different care. It finds that physician experience is the primary characteristic that affects efficiency. Experienced physicians perform fewer invasive procedures and charge less per visit, with no differences in health outcomes. There is evidence that high-quality physicians from top-20 medical schools exit the ER over time, so experienced physicians from lower ranked schools are the most efficient providers of urgent, but routine healthcare.Economicsjnv2106EconomicsWorking papersLocation Based Tax Incentives: Evidence from Indiahttp://academiccommons.columbia.edu/catalog/ac:155587
Chaurey, Ritamhttp://hdl.handle.net/10022/AC:P:18761Thu, 17 Jan 2013 00:00:00 +0000This paper studies the impact of the Government of India financed "New Industrial Policy for Uttarakhand and Himachal Pradesh", whereby beginning 2003, new industrial units and existing units upon expansion were given 100% income tax and excise tax exemption. Using a difference-in-differences approach, I find a large increase in employment, number of factories, total output and fixed capital at the 3-digit industry level. Using firm level data, I find that the average employment, output, fixed capital, and additions to plant and machinery increased for existing firms as a result of this policy. Hence I show that the policy change affected both the intensive and extensive margins. I also look at heterogeneity by firm size and find that the policy led to employment and output increases for smaller firms. Finally, I use synthetic control methods (Abadie, Diamond, and Hainmueller (2010)) as a robustness check for the treatment effects of the policy change.Economicsrc2556EconomicsWorking papersCan news shocks account for the business-cycle dynamics of inventories?http://academiccommons.columbia.edu/catalog/ac:155590
Crouzet, Nicolas; Oh, Hyunseunghttp://hdl.handle.net/10022/AC:P:18762Thu, 17 Jan 2013 00:00:00 +0000The procyclicality of inventory investment is a central feature of US business cycles. As such, it provides a test for the recent literature on news shocks, which argues that anticipated changes in fundamentals are important sources of aggregate fluctuations. We show that, in a range of inventory models, anticipated shocks to fundamentals generate booms of a peculiar kind: consumption and investment increase, but inventories fall persistently. During these booms, production and inventory investment are dominated by intertemporal substitution, as firms satisfy sales out of inventory stock and delay production until the realization of the anticipated shock. This mechanism is surprisingly difficult to overturn. We derive analytical parameter restrictions which guarantee procyclical inventory dynamics in response to news shocks, and show that standard calibrations considered in the literature do not come close to satisfying the restrictions. Furthermore, the introduction of the frictions studied by the news literature, such as variable capacity utilization and adjustment costs, is not sufficient to restore the procyclicality of inventories. We use the models' restrictions on the comovement of sales and inventories to identify news shocks in postwar US data. We find that the identified shock leads to a diffusion in TFP, but has a short implementation lag and accounts for a small fraction of long-run movements in TFP, inventories and sales.Economicsnc2371, ho2180EconomicsWorking papersPolygyny and Its Discontents: Paternal Age and Human Capital Accumulationhttp://academiccommons.columbia.edu/catalog/ac:155593
Edlund, Lena; Lagerlöf, Nils-Petterhttp://hdl.handle.net/10022/AC:P:18763Thu, 17 Jan 2013 00:00:00 +0000In polygyny, the fact that some men take several wives deprives others. This crowding-out has a distinct age dimension: the remarrying men are older. In monogamy, on the other hand, men marry once and, under reasonable assumptions, when young. We study the implications of this age-heterogeneity in a two-sex overlapping generations model, where agents live for two adult periods. Men are fecund in both periods while women only in the first one. We model restrictions on polygyny as a restriction on resources that old men can devote to a new family. Such restrictions result in more women choosing young, i.e., previously unmarried, men. If young men respond to their enhanced familial role by reallocating time from leisure activities to the raising of offspring, then steady-state human capital is boosted. Our model thus captures a link from legal constraints on polygyny to economic development. We argue that the mechanism and results fit with stylized facts of polygyny over time and in the cross-section.Economicsle93EconomicsWorking papersThe mystique surrounding the central bank's balance sheet, applied to the European crisishttp://academiccommons.columbia.edu/catalog/ac:155599
Reis, Ricardohttp://hdl.handle.net/10022/AC:P:18765Thu, 17 Jan 2013 00:00:00 +0000In spite of the mystique behind a central bank's balance sheet, its resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. Moreover, the statutes of the Federal Reserve or the ECB make it difficult for it to redistribute resources across regions. In a simple model of sovereign default, where multiple equilibria arise if debt repudiation lowers fiscal surpluses, the central bank may help to select one equilibrium. The central bank's main lever over fundamentals is to raise inflation, but otherwise the balance sheet gives it little leeway.Economicsrr2572EconomicsWorking papersStrategic Mass Killingshttp://academiccommons.columbia.edu/catalog/ac:154164
Esteban, Joan; Morelli, Massimo; Rohner, Dominichttp://hdl.handle.net/10022/AC:P:15205Wed, 07 Nov 2012 00:00:00 +0000We provide a model of conflict and mass killing decisions, to identify the key variables and situations that make mass killings more likely to occur. We predict that mass killings are most likely in countries with large amounts of natural resources, institutional constraints regarding rent sharing, and low productivity of labor in other sectors. The role of resources like oil, gas and diamonds and other key determinants of mass killings is confirmed by our empirical results based on country level as well as ethnic group level analysis.Political sciencemm3331Political Science, EconomicsWorking papersCan Market Failure Cause Political Failure?http://academiccommons.columbia.edu/catalog/ac:154158
Aney, Madhav S.; Ghatak, Maitreesh; Morelli, Massimohttp://hdl.handle.net/10022/AC:P:15204Wed, 07 Nov 2012 00:00:00 +0000We study how inefficiencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.Economics, Political sciencemm3331Political Science, EconomicsWorking papersTurnout and Power Sharinghttp://academiccommons.columbia.edu/catalog/ac:154161
Herrera, Helios; Morelli, Massimo; Palfrey, Thomas R.http://hdl.handle.net/10022/AC:P:15206Wed, 07 Nov 2012 00:00:00 +0000Differences in electoral rules and/or legislative, executive or legal institutions across countries induce different mappings from election outcomes to distributions of power. We explore how these different mappings affect voters' participation in a democracy. Assuming heterogeneity in the cost of voting, the effect of such institutional differences on turnout depends on the distribution of voters' preferences for the parties: when the two parties have similar support, turnout is higher in a winner-take-all system than in a power sharing system; the result is reversed when one side has a larger base. The results are robust to a wide range of modeling approaches, including the instrumental voting model, ethical voter models, and voter mobilization models. Findings from laboratory experiments provide empirical support for most of the theoretical predictions.Political sciencemm3331Political Science, EconomicsWorking papersCongested Observational Learninghttp://academiccommons.columbia.edu/catalog/ac:154177
Eyster, Eric; Galeotti, Andrea; Kartik, Navin; Rabin, Matthewhttp://hdl.handle.net/10022/AC:P:15209Wed, 07 Nov 2012 00:00:00 +0000We study observational learning in environments with congestion costs: as more of one's predecessors choose an action, the payoff from choosing that action decreases. Herds cannot occur if congestion on an action can get so large that an agent would prefer to take a different action no matter his beliefs about the state. To the extent that "switching" away from the more popular action also reveals some private information, social learning is improved. The absence of herding does not guarantee complete learning, however, as information cascades can occur through perpetual but uninformative switching between actions. Our main contribution is to provide conditions on the nature of congestion costs that guarantee complete learning and conditions that guarantee bounded learning. We also show that congestion costs have ambiguous effects on the proportion of agents who choose the superior action. We apply our results to markets where congestion costs arise through responsive pricing and to queuing problems where agents dislike waiting for service.Economicsnk2339EconomicsWorking papersThe Incumbency Effects of Signallinghttp://academiccommons.columbia.edu/catalog/ac:154170
Caselli, Francesco; Cunningham, Tom; Morelli, Massimo; Moreno de Barreda, Ineshttp://hdl.handle.net/10022/AC:P:15207Wed, 07 Nov 2012 00:00:00 +0000Much literature on political behavior treats politicians as motivated by reelection, choosing actions to signal their types to voters. We identify a novel implication of incumbent signalling. Because incumbents only care about clearing a reelection hurdle, signals will tend to cluster just above the threshold needed for reelection. This generates a skew distribution of signals leading to an incumbency advantage in the probability of election. We also solve for the optimal threshold when voters have the ability to commit.Political sciencemm3331Political Science, EconomicsWorking papersSimple Mechanisms and Preferences for Honestyhttp://academiccommons.columbia.edu/catalog/ac:154174
Holden, Richard; Kartik, Navin; Tercieux, Olivierhttp://hdl.handle.net/10022/AC:P:15208Wed, 07 Nov 2012 00:00:00 +0000We consider full implementation in abstract complete-information environments when agents have an arbitrarily small preference for honesty. We offer a condition called separable punishment and show that when it holds and there are at least two agents, any social choice function can be implemented by a simple mechanism in two rounds of iterated deletion of strictly dominated strategies. We also extend our result to settings of incomplete information so long as there is non-exclusive information.Economicsnk2339EconomicsWorking papersThe Roommate Problem Is More Stable Than You Thinkhttp://academiccommons.columbia.edu/catalog/ac:154183
Chiappori, Pierre A.; Galichon, Alfred; Salanie, Bernardhttp://hdl.handle.net/10022/AC:P:15211Wed, 07 Nov 2012 00:00:00 +0000Stable matchings may fail to exist in the roommate matching problem, both when utility is transferable and when it is not. We show that when utility is transferable, the existence of a stable matching is restored when there is an even number of individuals of indistinguishable characteristics and tastes (types.) As a consequence, when the number of individuals of any given type is large enough there always exist "quasi-stable" matchings: a stable matching can be restored with minimal policy intervention. Our results build on an analogy with an associated bipartite problem; it follows that the tools crafted in empirical studies of the marriage problem can easily be adapted to the roommate problem.Economicspc2167, bs2237EconomicsWorking papersFrom Aggregate Betting Data to Individual Risk Preferenceshttp://academiccommons.columbia.edu/catalog/ac:154180
Chiappori, Pierre A.; Salanie, Bernard; Salanie, Francois; Gandhi, Amithttp://hdl.handle.net/10022/AC:P:15210Wed, 07 Nov 2012 00:00:00 +0000As a textbook model of contingent markets, horse races are an attractive environment to study the attitudes towards risk of bettors. We innovate on the literature by explicitly considering heterogeneous bettors and allowing for very general risk preferences, including non-expected utility. We build on a standard single-crossing condition on preferences to derive testable implications; and we show how parimutuel data allow us to uniquely identify the distribution of preferences among the population of bettors. We then estimate the model on data from US races. Within the expected utility class, the most usual specfications (CARA and CRRA) fit the data very badly. Our results show evidence for both heterogeneity and nonlinear probability weighting.Economicspc2167, bs2237EconomicsWorking papersEnlisting Workers in Monitoring Firms: Payroll Tax Compliance in Mexicohttp://academiccommons.columbia.edu/catalog/ac:148719
Kumler, Todd Johnson; Verhoogen, Eric A.; Frias, Judithhttp://hdl.handle.net/10022/AC:P:13727Fri, 29 Jun 2012 00:00:00 +0000Non-compliance of firms with tax regulations is a major constraint on state capacity in developing countries. We focus on an arguably under-appreciated dimension of non-compliance: under-reporting of wages by formal firms to evade payroll taxes. Comparing wage distributions for similar sets of workers in the administrative records of the Mexican social security agency and a household labor-force survey, we document extensive under-reporting of wages. We further argue that the 1997 Mexican pension reform had a differential effect by age on the incentives of workers to ensure that their wages were reported accurately. Using a difference-in-differences strategy, we present evidence that the increase in the incentive for workers to ensure accurate reports led to a significant decline in under-reporting. The results suggest that enlisting workers in monitoring their employers is an effective way to increase payroll tax compliance.Economics, Labortjk2110, ev2124Economics, International and Public AffairsWorking papersIdentification and Estimation of Dynamic Factor Modelshttp://academiccommons.columbia.edu/catalog/ac:146472
Bai, Jushan; Wang, Penghttp://hdl.handle.net/10022/AC:P:13083Wed, 02 May 2012 00:00:00 +0000We consider a set of minimal identification conditions for dynamic factor models. These conditions have economic interpretations, and require fewer number of restrictions than when putting in a static-factor form. Under these restrictions, a standard structural vector autoregression (SVAR) with or without measurement errors can be embedded into a dynamic factor model. More generally, we also consider overidentification restrictions to achieve efficiency. General linear restrictions, either in the form of known factor loadings or cross-equation restrictions, are considered. We further consider serially correlated idiosyncratic errors with heterogeneous coefficients. A numerically stable Bayesian algorithm for the dynamic factor model with general parameter restrictions is constructed for estimation and inference. A square-root form of Kalman filter is shown to improve robustness and accuracy when sampling the latent factors. Confidence intervals (bands) for the parameters of interest such as impulse responses are readily computed. Similar identification conditions are also exploited for multi-level factor models, and they allow us to study the spill-over effects of the shocks arising from one group to another.Economic theoryjb3064EconomicsWorking papersWIC in Your Neighborhood: New Evidence on the Impacts of Geographic Access to Clinicshttp://academiccommons.columbia.edu/catalog/ac:146323
Rossin-Slater, Mayahttp://hdl.handle.net/10022/AC:P:13050Thu, 19 Apr 2012 00:00:00 +0000A large body of evidence indicates that conditions in-utero and health at birth are predictive of individuals' long-run outcomes, pointing to the potential value in programs aimed at pregnant women and new mothers. This paper uses a novel identification strategy and data set to provide causal estimates of the effects of geographic access to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), the major US program aimed at improving the well-being of low-income pregnant and post-partum women, infants, and children under age 5. I utilize data on sibling births over 2005-2009 and administrative records on the locations and dates of openings and closings of WIC clinics over the same time period. The empirical approach uses within-zip-code variation in WIC clinic presence together with maternal fixed effects, and accounts for the potential endogeneity of mobility, gestational-age bias, and measurement error in gestation. The results show that geographic access to WIC clinics increases the likelihood of WIC food benefit take-up, and decreases the likelihood of gaining too little weight during pregnancy. I also provide some evidence that other aspects of the WIC program, such as health screenings and referrals to other services may have effects on women's behaviors during pregnancy. Finally, I show that access to WIC increases average birth weight and the likelihood of breastfeeding at the time of hospital discharge. The effects are strongest for mothers with a high school education or less, who are most likely eligible for WIC services.Economics, Demographymr2856EconomicsWorking papersProfitability of Product Bundlinghttp://academiccommons.columbia.edu/catalog/ac:145521
Chen, Yongmin; Riordan, Michael H.http://hdl.handle.net/10022/AC:P:12873Thu, 22 Mar 2012 00:00:00 +0000Using copulas to model the stochastic dependence of values, this paper establishes new general conditions on the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two products are negatively dependent, independent, or have limited positive dependence. With more than two goods, the same conditions are sufficient for an optimal monopoly selling scheme to include a bundle of at least two products. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.Economic theory, Businessmhr21EconomicsWorking papersPrincipled Policymaking in an Uncertain Worldhttp://academiccommons.columbia.edu/catalog/ac:138125
Woodford, Michaelhttp://hdl.handle.net/10022/AC:P:11062Thu, 01 Sep 2011 00:00:00 +0000This paper considers the consequences for the theory of economic policy of allowing for the inevitability of non-routine change in the environment in which policy is conducted. It addresses in particular the modifications that must be made to standard discussions (based on an assumption of "rational" or model-consistent expectations) of the advantages of commitment to a policy rule over a purely discretionary approach to policy. The paper argues that a certain naïve conception of a policy rule -- under which it should be possible to state in advantage a fully explicit formula determining a specific policy action as a function of publicly observable state variables -- makes little sense once one allows for the impossibility of listing in advance all possible future states of knowledge about economic conditions, but argues that purely discretionary policy is not the only coherent alternative. Instead, the paper distinguishes between multiple levels at which a particular systematic approach to policy may simultaneously be described, and argues that a higher-level policy commitment remains both possible and desirable, even if discretion will have to be allowed in the translation of the higher-level policy commitments into a more concrete (lower-level) description of the way that policy should be conducted under the particular future circumstances that arise. Four distinct levels of description are distinguished in the case of monetary policy, where the general idea is developed in greater detail, and the paper concludes with a discussion of ways in which the conventional theory of monetary policy should be modified in the light of the recent global financial crisis.Economicsmw2230EconomicsWorking papersPrincipal Components Estimation and Identification of the Factorshttp://academiccommons.columbia.edu/catalog/ac:138129
Bai, Jushan; Ng, Serenahttp://hdl.handle.net/10022/AC:P:11063Thu, 01 Sep 2011 00:00:00 +0000It is known that the principal component estimates of the factors and the loadings are rotations of the underlying latent factors and loadings. We study conditions under which the latent factors can be estimated asymptotically without rotation. We derive the limiting distributions for the factor estimates when N and T are large and make precise how identification of the factors affects inference based on factor augmented regressions. We also consider factor models with additive individual and time effects.Economic theoryjb3064, sn2294EconomicsWorking papersEstimating High Dimensional Covariance Matrices and Its Applicationshttp://academiccommons.columbia.edu/catalog/ac:138133
Bai, Jushan; Shi, Shuzhonghttp://hdl.handle.net/10022/AC:P:11064Thu, 01 Sep 2011 00:00:00 +0000Estimating covariance matrices is an important part of portfolio selection, risk management, and asset pricing. This paper reviews the recent development in estimating high dimensional covariance matrices, where the number of variables can be greater than the number of observations. The limitations of the sample covariance matrix are discussed. Several new approaches are presented, including the shrinkage method, the observable and latent factor method, the Bayesian approach, and the random matrix theory approach. For each method, the construction of covariance matrices is given. The relationships among these methods are discussed.Economic theoryjb3064EconomicsWorking papersThe Central-Bank Balance Sheet As an Instrument of Monetary Policyhttp://academiccommons.columbia.edu/catalog/ac:127321
Cúrdia, Vasco; Woodford, Michaelhttp://hdl.handle.net/10022/AC:P:9188Fri, 26 Aug 2011 00:00:00 +0000While many analyses of monetary policy consider only the adjustment of a central bank's target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves beyond those required to achieve an interest-rate target, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between "quantitative easing" in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves, and argue that the interest rate on reserves should be kept near the central bank's target for the policy rate at all times.Economics, Financemw2230EconomicsWorking papersWage Arrears, Poverty, and Family Survival Strategies in Russiahttp://academiccommons.columbia.edu/catalog/ac:100506
Desai, Padma B.; Idson, Toddhttp://hdl.handle.net/10022/AC:P:15737Fri, 26 Aug 2011 00:00:00 +0000In this paper we use a longitudinal survey of Russian households for analyzing the impact of wage arrears on the incidence of poverty among families and their survival strategies. The failure of enterprises and government to fully pay workers in a timely fashion is shown to be associated with a higher incidence of poverty; a similar effect is found for pensioners experiencing pension arrears. As a result of pay delays, we find that individuals and families were more likely to take second jobs, increase home production for own-consumption and sale, reduce their rate of saving, sell family assets, and receive transfers of goods and money from relatives (which, in turn, reduce the effect of wage nonpayment on poverty). Wage nonpayment also contributed to a rise in barter between workers and firms, although the monetary value of these goods and services did little to arrest the upward trend in outstanding net debt to workers.Economicspd5EconomicsWorking papersEducation's Role in Explaining Diabetic Health Investment Differentialshttp://academiccommons.columbia.edu/catalog/ac:100302
Kahn, Matthew E.http://hdl.handle.net/10022/AC:P:15674Mon, 22 Aug 2011 00:00:00 +0000Diabetic tight blood sugar control minimizes the likelihood of complications. This study focuses on quantifying education's role in explaining diabetic investment in health capital. Ability and information proxies are used to test whether education's positive effect on diabetic compliance is causal. The paper's key finding is that education continues to have a positive impact on diabetic health investment even after controlling for IQ and available information.Education, Public healthmk214EconomicsWorking papersTopology and Invertible Mapshttp://academiccommons.columbia.edu/catalog/ac:100290
Chichilnisky, Gracielahttp://hdl.handle.net/10022/AC:P:15670Mon, 22 Aug 2011 00:00:00 +0000I study connected manifolds and prove that a proper map f: M → M is globally invertible when it has a nonvanishing Jacobian and the fundamental group п1 (M) is finite. This includes finite and infinite dimensional manifolds. Reciprocally, if п1 (M) is infinite, there exist locally invertible maps which are not globally invertible. The results provide simple conditions for unique solutions to systems of simultaneous equations and for unique market equilibrium. Under standard desirability conditions, it is shown that a competitive market has a unique equilibrium if its reduced excess demand has a nonvanishing Jacobian. The applications are sharpest in markets with limited arbitrage and strictly convex preferences: a nonvanishing Jacobian ensures the existence of a unique equilibrium in finite of infinite dimensions, even when the excess demand is not defined for some prices, and with or without short sales.Economic theorygc9EconomicsWorking papersThe Design of Monte Carlo Experiments for VAR Modelshttp://academiccommons.columbia.edu/catalog/ac:100282
Dhrymes, Phoebus J.http://hdl.handle.net/10022/AC:P:15668Mon, 22 Aug 2011 00:00:00 +0000This paper deals with the design of Monte Carlo experiments in the context of cointegrated VAR models. Such experiments often seek to establish the applicability of asymptotic distributional results for sampled of size 100 to 200, which are typical of macroeconomic times series. Hithertofore, the design of such experiments has relied on certain simple models given in Bannerjee et al. (1986), Engle and Granger (1987), and Phillips (1991). Here we provide the framework for designing experiments based on much more general models, of which the designs above are special cases.Economic theorypjd1EconomicsWorking papersThe AIDS Epidemic and Economic Policy Analysishttp://academiccommons.columbia.edu/catalog/ac:100133
Bloom, David E.; Mahal, Ajay S.http://hdl.handle.net/10022/AC:P:15621Fri, 12 Aug 2011 00:00:00 +0000Economists have a vital role to play in helping public health officials and policymakers understand the AIDS epidemic and design efficient policies to limit its impact. AIDS is first and foremost a public health problem, but it is a problem with deep economic roots and potentially devastating economic consequences. The main purpose of this article is to document this assertion.Economics, Public healthEconomics, Economics (Barnard College)Working papersBones, bombs and break points: The geography of economic activityhttp://academiccommons.columbia.edu/catalog/ac:114305
Davis, Donald R.; Weinstein, David E.http://hdl.handle.net/10022/AC:P:423Fri, 12 Aug 2011 00:00:00 +0000We consider the distribution of economic activity within a country in light of three leading theories - increasing returns, random growth, and locational fundamentals. To do so, we examine the distribution of regional population in Japan from the Stone Age to the modern era. We also consider the Allied bombing of Japanese cities in WWII as a shock to relative city sizes. Our results support a hybrid theory in which locational fundamentals establish the spatial pattern of relative regional densities, but increasing returns may help to determine the degree of spatial differentiation. One implication of these results is that even large temporary shocks to urban areas have no long-run impact on city size.Economicsdrd28, dew35EconomicsWorking papersThe factor content of tradehttp://academiccommons.columbia.edu/catalog/ac:114328
Davis, Donald R.; Weinstein, David E.http://hdl.handle.net/10022/AC:P:424Fri, 12 Aug 2011 00:00:00 +0000Study of the factor content of trade has become a laboratory to test our ideas about how the key elements of endowments, production, absorption and trade fit together within a general equilibrium framework. Already a great deal of progress has been made in fitting these pieces together. Nevertheless, the existing research raises a great many questions that should help to focus empirical research in the coming years. Among the more pressing issues is a deeper consideration of the role of intermediates, the role of aggregation biases, and of differences in patterns of absorption. This work should provide a more substantial foundation for future policy work developed within a factor content framework.Economicsdrd28, dew35EconomicsWorking papersDo factor endowments matter for north-north trade?http://academiccommons.columbia.edu/catalog/ac:114259
Davis, Donald R.; Weinstein, David E.http://hdl.handle.net/10022/AC:P:421Fri, 12 Aug 2011 00:00:00 +0000The dominant paradigm of world trade patterns posits two principal features. Trade between North and South arises due to traditional comparative advantage, largely determined by differences in endowment patterns. Trade within the North, much of it intra-industry trade, is based on economies of scale and product differentiation. The paradigm specifically denies an important role for endowment differences in determining North-North trade. This paper provides the first sound empirical examination of this question. We demonstrate that trade in factor services among countries of the North is systematically related to endowment differences and large in economic magnitude. Intra-industry trade, rather than being a puzzle for a factor endowments theory, is instead the conduit for a great deal of this factor service trade.Economicsdrd28, dew35EconomicsWorking papersMarket size, linkages, and productivity: A study of Japanese regionshttp://academiccommons.columbia.edu/catalog/ac:114236
Davis, Donald R.; Weinstein, David E.http://hdl.handle.net/10022/AC:P:420Fri, 12 Aug 2011 00:00:00 +0000One account of spatial concentration focuses on productivity advantages arising from market size. We investigate this for forty regions of Japan. Our results identify important effects of a region's own size, as well as cost linkages between producers and suppliers of inputs. Productivity links to a more general form of "market potential" or Marshall-Arrow-Romer externalities do not appear to be robust in our data. Landlocked status does not matter for productivity of regions in Japan. The effects we identify are economically quite important, accounting for a substantial portion of cross-regional productivity differences. A simple counterfactual shows that if economic activity were spread evenly over the forty regions of Japan, aggregate output would fall by nearly twenty percent.Economicsdrd28, dew35EconomicsWorking papersProjecting the Number of New AIDS Cases in the U.S.http://academiccommons.columbia.edu/catalog/ac:99761
Bloom, David E.; Glied, Sherry A. M.http://hdl.handle.net/10022/AC:P:15506Fri, 12 Aug 2011 00:00:00 +0000This paper reviews the two leading methods used to project the number of AIDS cases: back calculation and extrapolation. These methods are assessed in light of key features of the HIV/AIDS epidemic and of data on the epidemic; they are also assessed in terms of the quality of the projections they yield. Our analysis shows that both methods have tended to overproject, often by sizable amounts, the number of AIDS cases in the U.S., especially among homosexual/bisexual males and users of blood and blood products. Our results provide no evidence that the use of AZT and other prophylaxis accounts for these projection errors. Rather, the overprojections appear to be mainly the result of a considerable reduction in the rate of new HIV infection among the gay community starting in 1983-85. A new method for projecting AIDS cases is proposed that exploits knowledge about the process generating AIDS cases and that incorporates readily available information about rates of new HIV infection. This method is far less sensitive to estimates of the incubation distribution than the method of back calculation and is shown, for the two transmission categories studied, to generate far more accurate AIDS case projections through 1990 than those based on the method of extrapolation. Relative to the method of extrapolation, this method projects 22,000 fewer new AIDS cases for 1995 (a 36 percent difference). This method also projects that intravenous drug users will replace homosexual/bisexual men as the dominant transmission category for AIDS.Economics, Public healthsag1Economics, Health Policy and ManagementWorking papersRental Housing Assistance for the 21st Centuryhttp://academiccommons.columbia.edu/catalog/ac:133432
O'Flaherty, Brendan Andrewhttp://hdl.handle.net/10022/AC:P:10485Mon, 06 Jun 2011 00:00:00 +0000Current rental housing assistance programs are not designed to provide a safety net for people whose lives are volatile, or to encourage poor people to live in good locations. These failings can be corrected. HUD should establish a program of rental insurance-like mortgage insurance, but for renters. Low income housing assistance formulas should be revised to reward good neighborhood features, and punish bad.Economicsbo2EconomicsWorking papersTargeted Transfers and the Fiscal Response to the Great Recessionhttp://academiccommons.columbia.edu/catalog/ac:133438
Oh, Hyunseung; Reis, Ricardohttp://hdl.handle.net/10022/AC:P:10486Mon, 06 Jun 2011 00:00:00 +0000Between 2007 and 2009, government expenditures increased rapidly across the OECD countries. While economic research on the impact of government purchases has flourished, in the data, about three quarters of the increase in expenditures in the United States (and more in other countries) was in government transfers. We document this fact, and show that the increase in U.S. spending on retirement, disability, and medical care has been as high as the increase in government purchases. We argue that future research should focus on the positive impact of transfers. Towards this, we present a model in which there is no representative agent and Ricardian equivalence does not hold because of uncertainty, imperfect credit markets, and nominal rigidities. Targeted lump-sum transfers are expansionary both because of a neoclassical wealth effect and because of a Keynesian aggregate demand effect.Economicsho2180, rr2572EconomicsWorking papersMatching with a Handicap: The Case of Smoking in the Marriage Markethttp://academiccommons.columbia.edu/catalog/ac:133178
Chiappori, Pierre A.; Oreffice, Sonia; Quintana-Domeque, Climenthttp://hdl.handle.net/10022/AC:P:10482Wed, 01 Jun 2011 00:00:00 +0000We develop a matching model on the marriage market, where individuals have preferences over the smoking status of potential mates, and over their socioeconomic quality. Spousal smoking is bad for non-smokers, but it is neutral for smokers, while individuals always prefer high socioeconomic quality. Furthermore, there is a gender difference in smoking prevalence, there being more smoking men than smoking women for all education levels, so that smoking women and non-smoking men are in short supply. The model generates clear cut conditions regarding matching patterns. Using CPS data and its Tobacco Use Supplements for the years 1996 to 2007, and proxing socioeconomic status by educational attainment, we .nd that these conditions are satis.ed. There are fewer "mixed" couples where the wife smokes than vice-versa, and matching is assortative on education within smoking types of couples. Among non-smoking wives those with smoking husbands have on average 0.14 fewer years of completed education than those with non-smoking husbands. Finally, and somewhat counterintuitively, we find that, as theory predicts, among smoking husbands those who marry smoking wives have on average 0.16 more years of completed education than those with non-smoking wives.Economic theory, Social researchpc2167EconomicsWorking papersIndividual Homelessness: Entries, Exits, and Policyhttp://academiccommons.columbia.edu/catalog/ac:133184
O'Flaherty, Brendan Andrewhttp://hdl.handle.net/10022/AC:P:10483Wed, 01 Jun 2011 00:00:00 +0000Homelessness is part of the lives of many people. But almost no one is homeless for all or most of his or her life. The median shelter homeless spell is well under a month, and even "chronic homelessness" officially entails spells of a year or so. I model homelessness as part of people's lives in a dynamic stochastic framework in continuous time. I can explain many empirical regularities with a parsimonious model: for instance, why the last addresses of homeless people are concentrated in a few low-rent neighborhoods, why homeless entries are hard to predict, why recidivism is common and past homelessness is a good predictor of future homelessness, why some groups recidivate more often than others, why the hazard rate for shelter exit is single-peaked, why effective homelessness prevention programs do not alter the average length of homeless spells. I also examine policy. The optimal homelessness prevention program is Pigouvian and starkly simple. With an optimal prevention program in place, optimal shelter quality maximizes a simple and intuitive expression, and insurance programs always raise social welfare. Most of the previous economics literature about homelessness has been static, but most literature about homelessness outside economics has been dynamic. This paper tries to bring the two strands of literature closer together.Economicsbo2EconomicsWorking papersLearning From a Piece of Piehttp://academiccommons.columbia.edu/catalog/ac:133172
Chiappori, Pierre A.; Donni, Olivier; Komunje, Ivanahttp://hdl.handle.net/10022/AC:P:10480Wed, 01 Jun 2011 00:00:00 +0000We investigate the empirical content of the Nash solution to two-player bar-gaining games. The bargaining environment is described by a set of variables that may affect agents' preferences over the agreement sharing, the status quo outcome, or both. The outcomes (i.e., whether an agreement is reached, and if so the individual shares) and the environment (including the size of the pie) are known, but neither are the agents' utilities nor their threat points. We consider both a deterministic version of the model in which the econometrician observes the shares as deterministic functions of the variables under consideration, and a stochastic one in which because of latent disturbances only the joint distribution of incomes and outcomes is recorded. We show that in the most general framework any outcome can be rationalized as a Nash solution. However, even mild exclusion restrictions generate strong implications that can be used to test the Nash bargaining assumption. Stronger conditions further allow to recover the underlying structure of the bargaining, and in particular, the cardinal representation of individual preferences in the absence of uncertainty. An implication of this finding is that empirical works entailing Nash bargaining could (and should) use much more general and robust versions than they usually do.Economic theorypc2167EconomicsWorking papersFatter Attraction: Anthropometric and Socioeconomic Matching on the Marriage Markethttp://academiccommons.columbia.edu/catalog/ac:133175
Chiappori, Pierre A.; Oreffice, Sonia; Quintana-Domeque, Climenthttp://hdl.handle.net/10022/AC:P:10481Wed, 01 Jun 2011 00:00:00 +0000We construct a matching model on the marriage market along more than one characteristic, where individuals have preferences over physical attractiveness and socioeconomic characteristics that can be summarized by a one-dimensional index combining these various attributes. We show that under a (testable) separability assumption, the indices are ordinally identified. We estimate the model using data from the PSID. Our separability tests do not reject. We find that among men, a 10% increase in BMI can be compensated by a higher wage of around 3%. Similarly, for women, an additional year of education may compensate up to three BMI units.Economic theory, Social researchpc2167EconomicsWorking papersPartner Choice and the Marital College Premiumhttp://academiccommons.columbia.edu/catalog/ac:133169
Chiappori, Pierre A.; Salanie, Bernard; Weiss, Yoramhttp://hdl.handle.net/10022/AC:P:10479Wed, 01 Jun 2011 00:00:00 +0000Several theoretical contributions have argued that the returns to schooling within marriage play a crucial role for human capital investments. Our paper quantifies the evolution of these returns over the last decades. We consider a frictionless matching framework á la Becker-Shapley-Shubik, in which the gain generated by a match between two individuals is the sum of a systematic effect that only depends on the spouses' education classes and a match-specific term that we treat as random; following Choo and Siow (2006), we assume the latter component has an additively separable structure. We derive a complete, theoretical characterization of the model. We show that if the supermodularity of the surplus function is invariant over time and errors have extreme value distributions with time-invariant but education-dependent variances, the model is overidentified. We apply our method to US data on individuals born between 1943 and 1972. Our model fits the data very closely; moreover, we find that the deterministic part of the surplus is indeed supermodular and that, in line with theoretical predictions, the "marital college premium" has increased for women but not for men over the period.Economic theory, Educationpc2167, bs2237EconomicsWorking papersCupid's Invisible Hand: Social Surplus and Identification in Matching Modelshttp://academiccommons.columbia.edu/catalog/ac:133162
Salanie, Bernard; Galichon, Alfredhttp://hdl.handle.net/10022/AC:P:10478Wed, 01 Jun 2011 00:00:00 +0000We investigate a matching game with transferable utility when some of the characteristics of the players are unobservable to the analyst. We allow for a wide class of distributions of unobserved heterogeneity, subject only to a separability assumption that generalizes Choo and Siow (2006). We first show that the stable matching maximizes a social gain function that trades of two terms. The first term is simply the average surplus due to the observable characteristics; and the second one can be interpreted as a generalized entropy function that reflects the impact of the unobserved characteristics. We use this result to derive simple closed-form formulæ that identify the joint surplus in every possible match and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. Moreover, we show that if transfers are observed, then the pre-transfer utilities of both partners are also identified. We conclude by discussing some empirical approaches suggested by these results for the study of marriage markets, hedonic prices, and the market for CEOs.Economic theorybs2237EconomicsWorking papersProfitability of Product Bundlinghttp://academiccommons.columbia.edu/catalog/ac:133158
Chen, Yongmin; Riordan, Michael H.http://hdl.handle.net/10022/AC:P:10477Wed, 01 Jun 2011 00:00:00 +0000Using copulas to model the stochastic dependence of values, this paper establishes new general conditions on the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two products are negatively dependent, independent, or have limited positive dependence. With more than two goods, the same conditions are sufficient for an optimal monopoly selling scheme to include a bundle of at least two products. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.Economic theory, Businessmhr21EconomicsWorking papersGeneral equilibrium with endogenous uncertainty and defaulthttp://academiccommons.columbia.edu/catalog/ac:113011
Chichilnisky, Graciela; Wu, Ho-Mouhttp://hdl.handle.net/10022/AC:P:368Mon, 28 Mar 2011 00:00:00 +0000In this paper we study the introduction of new assets which are oftenly observed to be defined in expected values rather than state by state, called the Arrow-Lind-Malinvaud (ALM) assets. We demonstrate that individual default emerges naturally in an economy where such ALM assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium.Economic theorygc9EconomicsWorking papersEstimating the impact of climate change on crop yields: The importance of non-linear temperature effectshttp://academiccommons.columbia.edu/catalog/ac:112522
Schlenker, Wolfram; Roberts, Michael J.http://hdl.handle.net/10022/AC:P:347Mon, 28 Mar 2011 00:00:00 +0000There has been an active debate whether global warming will result in a net gain or net loss for United States agriculture. With mounting evidence that climate is warming, we show that such warming will have substantial impacts on agricultural yields by the end of the century: yields of three major crops in the United States are predicted to decrease by 60 to 79% under the most rapid warming scenario. We use a 55-year panel of crop yields in the United States and pair it with a unique fine-scale weather data set that incorporates the whole distribution of temperatures between the minimum and maximum within each day and across all days in the growing season. The key contribution of our study is in identifying a highly non-linear and asymmetric relationship between temperature and yields. Yields increase in temperature until about 29° C for corn and soybeans and 33° C for cotton, but temperatures above these thresholds quickly become very harmful, and the slope of the decline above the optimum is significantly steeper than the incline below it. Previous studies average temperatures over a season, month, or day and thereby dilute this highly non-linear relationship. We use encompassing tests to compare our model with others in the literature and find its out-of-sample forecasts are significantly better. The stability of the estimated relationship across regions, crops, and time suggests it may be transferable to other crops and countries.Climate change, Agriculturews2162Economics, International and Public AffairsWorking papersInference in incomplete modelshttp://academiccommons.columbia.edu/catalog/ac:113244
Galichon, Alfred; Henry, Marchttp://hdl.handle.net/10022/AC:P:378Mon, 28 Mar 2011 00:00:00 +0000We provide a test for the specification of a structural model without identifying assumptions. We show the equivalence of several natural formulations of correct specification, which we take as our null hypothesis. From a natural empirical version of the latter, we derive a Kolmogorov-Smirnov statistic for Choquet capacity functionals, which we use to construct our test. We derive the limiting distribution of our test statistic under the null, and show that our test is consistent against certain classes of alternatives. When the model is given in parametric form, the test can be inverted to yield confidence regions for the identified parameter set. The approach can be applied to the estimation of models with sample selection, censored observables and to games with multiple equilibria.Economic theorymh530EconomicsWorking papersConstruction contracts (or "how to get the right building at the right price?")http://academiccommons.columbia.edu/catalog/ac:114282
Chakravarty, Surajeet; MacLeod, W. Bentleyhttp://hdl.handle.net/10022/AC:P:422Mon, 28 Mar 2011 00:00:00 +0000Most contracts that individuals enter into are not written from scratch; rather, they depend upon forms and terms that have been successful in the past. In this paper, we study the structure of form construction contracts published by the American Institute of Architects (AIA). We show that these contracts are an efficient solution to the problem of procuring large, complex projects when unforeseen contingencies are inevitable. This is achieved by carefully structuring the ex post bargaining game between the Principal and the Agent. The optimal mechanism corresponding to the AIA construction form is consistent with decisions of the courts in several prominent but controversial cases, and hence it provides an economic foundation for a number of the common-law excuses from performance. Finally, the case of form contracts for construction is an example of how markets, as opposed to private negotiations, can be used to determine efficient contract terms.Businesswbm2103Economics, International and Public AffairsWorking papersLegal default rules: The case of wrongful discharge lawshttp://academiccommons.columbia.edu/catalog/ac:114890
MacLeod, W. Bentley; Nakavachara, Voraprapahttp://hdl.handle.net/10022/AC:P:448Mon, 28 Mar 2011 00:00:00 +0000One of the most vexing public policy issues is the extent to which governments should intervene into private contractual relationships. The purpose of this paper is to explore both theoretically and empirically the extent to which such interventions may enhance efficiency. In the case of employment law, economists have traditionally taken the view that intervention, such as protection against wrongful discharge, simply undoes the original intent of the parties to the agreement. We find that both the good faith and the implied contract exceptions to employment at will may enhance employment in occupations characterized by high levels of investment. These results suggest that under the appropriate conditions courts may enhance the operation of a competitive market by setting appropriate default remedies for breach of contract.Economics, Lawwbm2103Economics, International and Public AffairsWorking papersReputations, relationships and the enforcement of incomplete contractshttp://academiccommons.columbia.edu/catalog/ac:114867
MacLeod, W. Bentleyhttp://hdl.handle.net/10022/AC:P:447Mon, 28 Mar 2011 00:00:00 +0000This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz (1984)), have been offered as solutions to the problem of enforcing an incomplete contract. It is shown that the efficiency of these solutions is very sensitive to the characteristics of the good or service exchanged. In general, neither the repeat purchase mechanism nor efficiency wages is the most efficient in the set of possible relational contracts. In many situations, total output may be increased through the use of performance pay and through increasing the quality of law.Lawwbm2103Economics, International and Public AffairsWorking papersAnalogical reasoning in decision processeshttp://academiccommons.columbia.edu/catalog/ac:114940
Amarante, Massimilianohttp://hdl.handle.net/10022/AC:P:450Mon, 28 Mar 2011 00:00:00 +0000We give a definition of reasoning by analogy, which is tailored to a setting of decision making under uncertainty. We present a model of decision making which is based on such a definition, and show that it is compatible with a large class of preferences.Economic theoryma734EconomicsWorking papersAsymmetric information about rivals' types in standard auctions: An experimenthttp://academiccommons.columbia.edu/catalog/ac:113500
Che, Yeon-Koo; Andreoni, James; Kim, Jinwoohttp://hdl.handle.net/10022/AC:P:389Mon, 28 Mar 2011 00:00:00 +0000This paper studies experimentally how information about rivals' types affects bidding behavior in first- and second-price auctions. The comparative static hypotheses associated with information about rivals enables us to test the relevance of such information as well as the general predictions of the auction theory, by providing an effective means to control for risk aversion and other behavioral motives that were difficult to control for in previous experiments. Our experimental evidence provides strong support for the theory, and sheds light on the roles of risk aversion and the spite motive in first- and second-price auctions, respectively.Economicsyc2271EconomicsWorking papersPrice-increasing competitionhttp://academiccommons.columbia.edu/catalog/ac:113763
Chen, Yongmin; Riordan, Michael H.http://hdl.handle.net/10022/AC:P:400Mon, 28 Mar 2011 00:00:00 +0000In a discrete choice model of product differentiation, the symmetric duopoly price may be lower than, equal to, or higher than the single-product monopoly price. While the market share effect of competition encourages a firm to charge less than the monopoly price because a duopolist serves fewer consumers, the price sensitivity effect of competition motivates a higher price when more consumer choice steepens the firm's demand curve. The joint distribution of consumer values for the two conceivable products determines the relative strength of these effects, and whether presence of a symmetric competitor results in a higher or lower price compared to single-product monopoly. The analysis reveals that rice-increasing competition is unexceptional from a theoretical perspective.Economicsmhr21EconomicsWorking papersGender roles and technological progresshttp://academiccommons.columbia.edu/catalog/ac:114611
Albanesi, Stefania; Olivetti, Claudiahttp://hdl.handle.net/10022/AC:P:436Mon, 28 Mar 2011 00:00:00 +0000Until the early decades of the 20th century, women spent more than 60% of their prime-age years either pregnant or nursing. Since then, the introduction of infant formula reduced women's comparative advantage in infant care, by providing an effective breast milk substitute. In addition, improved medical knowledge and obstetric practices reduced the time cost associated with women's reproductive role. We explore the hypothesis that these developments enabled married women to increase their participation in the labor force, thus providing the incentive to invest in market skills, which in turn reduced their earnings differential with respect to men. We document these changes and develop a quantitative model that aims to capture their impact. Our results suggest that progress in medical technologies related to motherhood was essential to generate a significant rise in the participation of married women between 1920 and 1950, in particular those with young children.Economics, Labor, Women's studiessa2310EconomicsWorking papersOptimal taxation of entrepreneurial capital with private informationhttp://academiccommons.columbia.edu/catalog/ac:114634
Albanesi, Stefaniahttp://hdl.handle.net/10022/AC:P:437Mon, 28 Mar 2011 00:00:00 +0000This paper studies optimal taxation of entrepreneurial capital with private information and multiple assets. Entrepreneurial activity is subject to a dynamic moral hazard problem and entrepreneurs face idiosyncratic capital risk. We first characterize the optimal allocation subject to the incentive compatibility constraints resulting from the private information. The optimal tax system implements such an allocation as a competitive equilibrium for a given market structure. We consider several market structures that differ in the assets or contracts traded and obtain three novel results. First, differential asset taxation is optimal. Marginal taxes on bonds depend on the correlation of their returns with idiosyncratic capital risk, which determines their hedging value. Entrepreneurial capital always receives a subsidy relative to other assets in the bad states. Second, if entrepreneurs are allowed to sell equity, the optimal tax system embeds a prescription for double taxation of capital income at the firm level and at the investor level. Finally, we show that taxation of assets is essential even with competitive insurance contracts, when entrepreneurial portfolios are also unobserved.Economics, Entrepreneurshipsa2310EconomicsWorking papersHome production, market production and the gender wage gap: Incentives and expectationshttp://academiccommons.columbia.edu/catalog/ac:114657
Albanesi, Stefania; Olivetti, Claudiahttp://hdl.handle.net/10022/AC:P:438Mon, 28 Mar 2011 00:00:00 +0000The purpose of this paper is to study the joint determination of gender differentials in labor market outcomes and in the household division of labor. Specifically, we explore the hypothesis that incentive problems in the labor market amplify differences in earnings due to gender differentials in home hours. In turn, earnings differentials reinforce the division of labor within the household, leading to a potentially self-fulfilling feedback mechanism. The workings of the labor market are key in our story. The main assumptions are that the utility cost of work effort is increasing in home hours, and that higher effort should correspond to higher incentive pay. Household decisions are Pareto efficient, leading to a negative correlation between relative home hours and earnings across spouses. We use the Census and the PSID to study these predictions and find that they are supported by the data.Economics, Labor, Gender studiessa2310EconomicsWorking papersTrade, quality upgrading and wage inequality in the Mexican manufacturing sectorhttp://academiccommons.columbia.edu/catalog/ac:114706
Verhoogen, Eric A.http://hdl.handle.net/10022/AC:P:440Mon, 28 Mar 2011 00:00:00 +0000This paper proposes a new mechanism linking trade and wage inequality in developing countries - the quality-upgrading mechanism - and investigates its empirical implications in panel data on Mexican manufacturing plants. In a model with heterogeneous plants and quality-differentiated goods, only the most productive plants in a country like Mexico enter the export market, they produce higher-quality goods to appeal to richer Northern consumers, and they pay high wages to attract and motivate a high-quality workforce. An exchange-rate devaluation leads initially more-productive, higher-wage plants to increase exports, upgrade quality, and raise wages relative to initially less-productive, lower-wage plants within each industry. Using the late-1994 peso crisis as a source of variation and a variety of proxies for plant productivity, I find that initially more-productive plants increased the export share of sales, white-collar wages, blue-collar wages, the relative wage of whitecollar workers, and ISO 9000 certification more than initially less-productive plants during the peso crisis period, and that these differential changes were greater than in periods without devaluations before and after the crisis period. A factor-analytic strategy that relies more heavily on the theoretical structure and avoids the need to construct proxies finds similar results. These findings support the hypothesis that differential quality upgrading induced by the exchange rate shock tended to increase within-industry wage inequality.Economics, Laborev2124Economics, International and Public AffairsWorking papersGood jobs, bad jobs, and trade liberalizationhttp://academiccommons.columbia.edu/catalog/ac:114729
Davis, Donald R.; Harrigan, Jameshttp://hdl.handle.net/10022/AC:P:441Mon, 28 Mar 2011 00:00:00 +0000Globalization threatens "good jobs at good wages", according to overwhelming public sentiment. Yet professional discussion often rules out such concerns a priori. We instead offer a framework to interpret and address these concerns. We develop a model in which monopolistically competitive firms pay efficiency wages, and these firms differ in both their technical capability and their monitoring ability. Heterogeneity in the ability of firms to monitor effort leads to different wages for identical workers - good jobs and bad jobs - as well as equilibrium unemployment. Wage heterogeneity combines with differences in technical capability to generate an equilibrium size distribution of firms. As in Melitz (2003), trade liberalization increases aggregate efficiency through a firm selection effect. This efficiency-enhancing selection effect, however, puts pressure on many "good jobs", in the sense that the high-wage jobs at any level of technical capability are the least likely to survive trade liberalization. In a central case, trade raises the average real wage but leads to a loss of many "good jobs" and to a steady-state increase in unemployment.Economics, Labordrd28EconomicsWorking papersOptimal collusion-proof auctionshttp://academiccommons.columbia.edu/catalog/ac:114775
Che, Yeon-Koo; Kim, Jinwoohttp://hdl.handle.net/10022/AC:P:443Mon, 28 Mar 2011 00:00:00 +0000We study an optimal weak collusion-proof auction in an environment where a subset (or subsets) of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best outcome - i.e., the noncollusive optimum - can be made weak collusion-proof, if at least one bidder is not collusive, or there are multiple bidding rings, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best is not weak collusion proof, we characterize an optimal weak collusion-proof auction. This auction involves nontrivial exclusion of collusive bidders - i.e., the object is not sold to any collusive bidder with positive probability.Economic theoryyc2271EconomicsWorking papersClass size and sorting in market equilibrium: Theory and evidencehttp://academiccommons.columbia.edu/catalog/ac:114798
Urquiola, Miguel S.; Verhoogen, Eric A.http://hdl.handle.net/10022/AC:P:444Mon, 28 Mar 2011 00:00:00 +0000This paper examines how schools choose class size and how households sort in response to those choices. Focusing on the highly liberalized Chilean education market, we develop a model in which schools are heterogeneous in an underlying productivity parameter, class size is a component of school quality, households are heterogeneous in income and hence willingness to pay for school quality, and schools are subject to a class-size cap. The model offers an explanation for two distinct empirical patterns observed among private schools that accept government vouchers: (i) There is an inverted-U relationship between class size and household income in equilibrium, which will tend to bias cross-sectional estimates of the effect of class size on student performance. (ii) Some schools at the class size cap adjust prices (or enrollments) to avoid adding another classroom, which produces stacking at enrollments that are multiples of the class size cap. This generates discontinuities in the relationship between enrollment and household characteristics at those points, violating the assumptions underlying regression-discontinuity (RD) research designs. This result suggests that caution is warranted in applying the RD approach in settings in which parents have substantial school choice and schools are free to set prices and influence their enrollments.Economic theory, Educationmsu2101, ev2124Economics, International and Public AffairsWorking papersWho merits financial aid? Massachusetts' Adams scholarshiphttp://academiccommons.columbia.edu/catalog/ac:114588
Goodman, Joshuahttp://hdl.handle.net/10022/AC:P:435Mon, 28 Mar 2011 00:00:00 +0000The majority of states in the U.S. now fund merit-based financial aid programs, the effects of which depend on how strongly students react to changes in college costs. I estimate such reactions using quasi-experimental aspects of a recent Massachusetts merit scholarship program intended to attract talented students to the state's public colleges. This paper is the first to document heterogeneity in price sensitivity among students of varying academic abilities. My primary result is that, in spite of its small monetary value, the scholarship induced 6% of winners to choose four-year public colleges over four-year private colleges, the average of a large effect on the lowest ability winners and no effect on the highest ability winners. The bulk of funds nonetheless flowed to students who would have attended public colleges anyway, and the scholarship had no effect on the overall college attendance rate, which for winners was already above 90%. These findings have implications for the design of future government-sponsored financial aid programs.Education, Economic theoryjg2394EconomicsWorking papersRemedies in the WTO: An economic perspectivehttp://academiccommons.columbia.edu/catalog/ac:114680
Bagwell, Kylehttp://hdl.handle.net/10022/AC:P:439Mon, 28 Mar 2011 00:00:00 +0000The WTO dispute settlement system represents a major achievement of the Uruguay Round. By most accounts, this system has worked very well. In the ongoing dispute settlement understanding (DSU) review, WTO Members are considering proposals that might lead to further improvements in the functioning of the dispute settlement system. Many of these proposals concern different kinds of remedies that might be used in response to a violation. An evaluation of proposals for remedy reform requires a perspective as to the purpose of the WTO. In this essay, I describe and then apply the terms-of-trade theory of trade agreements. I argue that this theory offers a coherent interpretation of the purpose and design of the WTO. The theory also offers novel insights with respect to proposed reforms of the WTO remedy system.Economicskwb8EconomicsWorking papersDoes a "two-pillar Phillips curve" justify a two-pillar monetary policy strategy?http://academiccommons.columbia.edu/catalog/ac:114752
Woodford, Michaelhttp://hdl.handle.net/10022/AC:P:442Mon, 28 Mar 2011 00:00:00 +0000Arguments for a prominent role for attention to the growth rate of monetary aggregates in the conduct of monetary policy are often based on references to low-frequency reduced-form relationships between money growth and inflation. The "two-pillar Phillips curve" proposed by Gerlach (2004) has recently attracted a great deal of interest in the euro area, where it is sometimes supposed to provide empirical support for the wisdom of a "two-pillar strategy" that uses distinct analytical frameworks to assess shorter-run and longer-run risks to price stability. I show, however, that regression coefficients of the kind reported by Assenmacher-Wesche and Gerlach (2006a) among others are quite consistent with a "new Keynesian" model of inflation determination, in which the quantity of money plays no role in inflation determination, at either high or low frequencies. I also show that empirical results of this kind do not in themselves establish that money growth must be useful in forecasting inflation, either in the short run or over a longer run. Hence they provide little support for the ECB's monetary "pillar."Economic theory, Financemw2230EconomicsWorking papersLinear-quadratic approximation of optimal policy problemshttp://academiccommons.columbia.edu/catalog/ac:116776
Benigno, Pierpaolo; Woodford, Michaelhttp://hdl.handle.net/10022/AC:P:528Mon, 28 Mar 2011 00:00:00 +0000We consider a general class of nonlinear optimal policy problems involving forward-looking constraints (such as the Euler equations that are typically present as structural equations in DSGE models), and show that it is possible, under regularity conditions that are straightforward to check, to derive a problem with linear constraints and a quadratic objective that approximates the exact problem. The LQ approximate problem is computationally simple to solve, even in the case of moderately large state spaces and flexibly parameterized disturbance processes, and its solution represents a local linear approximation to the optimal policy for the exact model in the case that stochastic disturbances are small enough. We derive the second-order conditions that must be satisfied in order for the LQ problem to have a solution, and show that these are stronger, in general, than those required for LQ problems without forward-looking constraints. We also show how the same linear approximations to the model structural equations and quadratic approximation to the exact welfare measure can be used to correctly rank alternative simple policy rules, again in the case of small enough shocks.Economic theorymw2230EconomicsWorking papersAuctioning the NFL overtime possessionhttp://academiccommons.columbia.edu/catalog/ac:114026
Che, Yeon-Koo; Hendershott, Terryhttp://hdl.handle.net/10022/AC:P:411Mon, 28 Mar 2011 00:00:00 +0000In an National Football League overtime, a coin is tossed to determine which team will receive the kick off. In the sudden death format starting on offense has a significantly higher chance of winning. This makes coin tossing one of the most climatic moments and immediately confers an advantage to one team. Proposals to improve the ex post fairness by guaranteeing each team one possession reduce the efficiency and excitement of the sudden-death format. We propose a simple approach motivated by economics: the coaches of opposing teams bid on the yardage from its end zone at which his team would begin offense, with the low bidder winning the offense right. For instance, if coaches of teams A and B bid 18 and 21 yards, respectively, team A would win and begin its offense at 18 from its end zone. This note analyzes the equilibrium outcome of such an auction and discusses its properties.Economic theoryyc2271EconomicsWorking papers